DaVita HealthCare Stock: Up 52% In a Year, Pure Play on Unhealthy Americans, Buffett’s on Board

One of the stocks that bucked the broader market trend today is DaVita HealthCare Partners (DVA), which eked out a tiny gain on a day that the Dow Jones Industrial Average lost more than 300 points. But that’s just the cherry atop the icing on top the cake: DaVita’s share price has been on a tear over the last year, rising more than 52%, and it has outperformed the S&P 500 consistently over the last five years.

DaVita agreed to pay $4.42 billion for HealthCare Partners LLC, a large physician group, back in May. That will help DaVita’s core dialysis business, giving it access to a larger stream of patients, and it’s one of those stocks that was already poised to do well, thanks to the apparently unquenchable hunger on the part of Americans for food and soft drinks that damage their kidneys. (Those suffering from obesity are at far greater risk of developing kidney damage, among other health problems.)

It has also emerged on the radar screens of a great number of both retail and institutional investors thanks to the disclosure that Warren Buffett has begun adding it to the Berkshire Hathaway (BRK.B) portfolio, perhaps at the suggestion of a new member of his team, Ted Weshler, a longtime fan of the stock. While it remains to be seen at what rate a post-Obamacare Medicare system will reimburse DaVita for dialysis expenses, the fact remains that Americans seem intent on making themselves future dialysis patients at a rapid enough clip to at least partially offset any such decrease.

One question that lurks in the wings is whether Buffett’s interest in the company has driven up its valuation too far, too fast. Certainly, the growth in its PE ratio over the last 12 months has greatly outstripped that of either earnings or revenues.

DaVita’s return on equity has fallen from its highs, but is still at a healthy 22.14%, while return on invested capital tops 7%. The key question is how the company handles the acquisition of HealthCare Partners, and whether that purchase contributes quickly to both revenues and profits.

Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.